Estimating the market power of airports in their catchment areas – a Europe-wide approach

Abstract

It is often argued that market regulation should only be applied to airports with significant degrees of market power, to avoid regulatory costs to exceed respective benefits. However, the measurement of airport market power is not a trivial issue, not least given the wide range of different market segments airports operate in. The aim of this paper is to develop a methodology for the assessment of airport market power which can be applied to the European airports.First, we provide an overview of existing methodologies applied in empirical studies that try to assess the degrees of airport market power. It is found that, while the literature provides some very detailed assessments for specific airports, no comparative studies for a wider range of European airports, based on uniform and transparent criteria, has so far been undertaken. Therefore we develop a transparent modelling approach for the estimation of airport market power in the local passenger market segment, which requires detailed regional GDP data on NUTS 3 level, airport-region distances and flight supply on the airport level, as reported by the Official Airline Guide (OAG), as main input data. We show and discuss the results for the 50 largest European airports.